California Medicaid ruling a cautionary tale for Texas

Afederal

appeals court in California ruled last week that the state may cut reimbursement rates to doctors, pharmacies and other providers in its Medicaid program, Medi-Cal, by as much as 10 percent. The ruling comes as California prepares to expand the program in compliance with Obamacare, which could add some 2 million people to the Medi-Cal rolls by 2014 — a 25 percent expansion.

Meanwhile, the number of physicians and other providers who will treat Medi-Cal patients has been steadily dropping in California for years due to poor reimbursement rates, which are among the lowest in the nation. Providers say that if rates are cut any further, they won’t even cover the cost of treatment, and physicians will be treating Medicaid patients at a loss.

The cuts are needed, California lawmakers say, to fill a $1.9 billion budget deficit next year. But what rate cuts will mean for the low-income families enrolled in Medi-Cal is an even harder time getting reasonable access to health care. When millions more are forced into the program as Obamacare takes effect, many of them could be hard-pressed to find a doctor at all.

This is an all too familiar story in California, where lawmakers have been cutting Medicaid payments while expanding program eligibility for a long time. California’s Medicaid payment rate is currently 48th-lowest in the nation, only about half the Medicare rate, which itself is significantly lower than what private insurance pays. The state doesn’t track physician participation in its Medi-Cal program, but a survey by the University of California, San Francisco, found that while most California physicians are accepting new patients, only about 57 percent will accept Medi-Cal patients. That percentage will go down as reimbursement rates go down, leaving millions of poor Californians with even worse access to health care.

California’s recklessness with Medicaid is a cautionary tale for Texas, where state lawmakers may face a budget shortfall many times greater than California’s. For the upcoming 2014-15 biennium, Texas could be as much as $13 billion short. Most of that comes from the growing cost of Medicaid and the looming implementation of Obamacare — even without Medicaid expansion. Texas spent $28 billion in state funds on Medicaid in 2011 and the program now accounts for a quarter of the state budget. Medicaid is projected

Kathleen Parker

David Brooks

Ross Douthat

Ramesh Ponnuru to keep growing at an alarming rate, providing a declining quality of care and consuming an ever-larger share of the state budget.

Because federal rules leave states with few options to control costs, the temptation for Texas is to do what California is doing and cut reimbursement rates, like the 1 percent rate cut the state approved in 2010. This might help fill the budget hole in the short term, but over time it will further shrink the number of participating doctors and put off needed reforms. Right now, less than a third of Texas physicians are willing to accept new Medicaid patients — a worse rate than in California — and further cuts to reimbursement rates will only exacerbate the problem.

Instead, Texas needs to do two things: remain steadfast in its determination not to expand Medicaid in accordance with Obamacare, and embark on fundamental Medicaid reform to ensure current enrollees continue to have access to care and providers continue to participate.

Lasting reform must address the flawed structure of Medicaid, which reimburses providers after the fact. Instead of paying physicians a fraction of what they typically get from private insurers, the state needs to implement a sliding scale payment system that helps Medicaid enrollees purchase their own health insurance.

This would ensure Medicaid patients have adequate and timely access to care, and would get the state out of the business of paying providers. By giving enrollees an active role in their care and eliminating itself as a middleman, the state could begin to control growth of Medicaid and reduce fraudulent billing that has plagued the system.

This kind of fundamental reform, however, can only succeed in the context of a federal block grant of Medicaid funds. State and federal lawmakers need to come together and push Washington for the flexibility to transform the current system into a sustainable program that ensures timely, quality care for the state’s poorest residents.

The alternative to reform is more of the same: incremental cuts to providers and, over time, fewer providers. Anyone can see where Texas will end up without fundamental reform. All you have to do is look at California.

Amity Shlaes Charles Krauthammer

George Will Amity Shlaes will return.